Expert insight

For bond investors, near-term pain but long-term gain

July 28, 2023

A solid line in the chart shows the fluctuation in a hypothetical $100 investment in bonds made on May 31, 2021. It shows the historical change in the value of that investment through December 31, 2021, and then our forecast for its evolution over the subsequent decade. The median forecast value stands at about $122 on the final date of December 31, 2031. On that date, the value of the 10th percentile of the forecasted distribution, represented by a dashed line, is about $112, and the value of the 90th percentile of the forecasted distribution, represented by another dashed line, is about $136.  Another solid line in the chart shows the historical change in the value of that same initial investment through June 30, 2023, and then our forecast for its evolution over the subsequent decade. The median forecast value stands at about $133 on the final date of June 30, 2033. On that date, the value of the 10th percentile of the forecasted distribution, represented by a dashed line, is about $119 and the value of the 90th percentile of the forecasted distribution, represented by another dashed line, is about $149.
The figure consists of two charts. In the first chart, one line shows the starting yield on 3-month Treasury bills for a 10-year investment from September 1991 through June 2023. That yield moves up and down significantly but trends lower across the period.  Another line shows the subsequent 10-year annualized return on 3-month Treasury bills over the same period. That return trends lower in a more linear fashion.    In the second chart, one line shows the starting yield on 10-year Treasury notes for a 10-year investment from September 1991 through June 2023. That yield moves up and down but trends downward across the period. Another line shows the subsequent 10-year annualized return on 10-year Treasury notes over the same period. That return trends lower while closely tracking the ups and downs in the starting yield.

Contributors

Ian Kresnak, CFA

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